This Infrastructure Stock Could Be the Best Investment of the Decade

Many companies would consider themselves fortunate to be part of an industry benefiting from even a single megatrend. The effects of such a trend can lead to significant earnings growth over the years. However, Brookfield Infrastructure (BIPC) (BIP) enjoys an abundance of opportunities. This leading global infrastructure company is tapping into not just one but three major global megatrends: decarbonization, deglobalization, and digitalization. These influential factors contribute to the company's forecast that the world will need to invest a staggering $100 trillion over the next 15 years for maintaining, upgrading, and building infrastructure. Given its sector leadership, Brookfield could emerge as one of the best investments of the next decade as it seizes substantial opportunities in infrastructure investments.

Multiple Growth Drivers

Brookfield Infrastructure anticipates that a combination of internal drivers will enhance its funds from operations (FFO) by 6% to 9% per share annually. These drivers include:

• Inflation Indexation: The infrastructure operations of Brookfield generate stable cash flow supported by long-term contracts and government-regulated rate structures. Many of these rates are linked to inflation, which should increase its FFO per share by 3% to 4% each year.
• GDP Growth: An expanding global economy is expected to stimulate volume growth across Brookfield's portfolio, adding 1% to 2% to its FFO per share yearly.
• Reinvested Cash Flow: Brookfield typically distributes 60% to 70% of its stable cash flows as dividends. The remainder is retained to fund high-return organic expansion projects, expected to drive another 2% to 3% annual FFO per share growth.

Alongside this internally funded growth, Brookfield also reinvests capital from asset sales into higher-return new ventures. Presently, the company has a backlog of $8 billion dedicated to capital projects, including various data center developments, two semiconductor fabrication facilities in the U.S., expansions to its transportation sector, utility enhancement projects, and energy midstream expansions. Additionally, another $4 billion is allocated for projects currently underway.

These projects mark just the beginning. With its industry-leading position, Brookfield aims to capture a significant share of impending infrastructure investment opportunities through new capital projects and acquisitions. CEO Sam Pollock mentioned in his letter to investors that, "in terms of new deployment, we have entered 2025 with a pipeline of early-stage capital deployment opportunities that is the deepest it has been in years." These additional catalysts support the notion that Brookfield can achieve FFO per share growth at an annual rate exceeding 10% in the coming years.

A Compelling Income Stream

A strong growth curriculum is only part of Brookfield Infrastructure's appeal. The company also offers a high-yielding, steadily increasing dividend. The current payout yields over 4%, substantially above the average S&P 500 dividend yield of around 1.2%.

Brookfield has demonstrated a robust track record of increasing dividends. Last year marked the 16th consecutive year of dividend growth, consistently occurring within or above its target range. Over this period, the dividend payout has grown at an annual rate of 9%. The company aims to increase its dividend by 5% to 9% annually moving forward, providing investors with a solid and continuously growing base return.

An Attractive Value Proposition

Companies with rapid growth rates, akin to Brookfield Infrastructure, often command premium valuations. However, that is not the case with Brookfield. It recorded $3.12 per share in FFO during the last fiscal year. With its stock trading recently over $40 per share, this results in a valuation of approximately 13.5 times its FFO.

This valuation is relatively low in comparison to the broader market. The S&P 500 currently trades at nearly 26 times earnings, while the Nasdaq-100 index exceeds 34 times earnings. Given Brookfield's growth trajectory, it deserves a much higher valuation multiple, explaining why the stock offers such an appealing dividend yield.

A Trio of Value Enhancers

The megatrend-driven dynamics of Brookfield Infrastructure position it for annual earnings growth exceeding 10% across many years ahead. Furthermore, its more than 4% yielding dividend is likely to continue rising at a robust rate. Together, these elements position the company for total returns around 15% annually. Additionally, there is potential for further upside arising from an expansion in its valuation multiple. This high total return potential could render Brookfield one of the best investment opportunities of the decade, particularly considering its comparatively lower risk profile.

infrastructure, investment, growth